Trading Tips: U.K. Employment and Inflation Numbers

Tomorrow we’ll see not one, but TWO tier 1 U.K. reports! Are you prepared to trade these events yet? Here are a couple of points that you should take note.

1. Employment numbers (10:30 am GMT)

Why is it important?
U.K. reports are no strangers to positive surprises, but interest rate warriors are likely to pay more attention to the employment numbers simply because the BOE is also watching it closely. Remember that in August the BOE decided to link its forward guidance to the unemployment rate, saying that the central bank isn’t likely to raise rates until the jobless rate falls to 7%.

What are analysts expecting tomorrow?
Markets geeks expect the unemployment rate to slip from 7.7% to 7.6% in September while the jobless claimant counts are estimated to fall by 33,200 after declining by 41,700 in August.

How will the pound react?
Since the report hasn’t disappointed the markets during the second half of the year and the BOE has pretty much admitted that the jobs sector is doing better than they initially estimated, many are looking for positive numbers tomorrow.

Upside surprises don’t guarantee a pound rally though. In fact, GBP/USD erased all of its intraday gains during last month’s release after traders saw that the average hourly earnings only rose by 0.7% instead of 1.0%. Talk about high standards! A downside surprise could also weigh on the pound and confirm GBP/USD’s break below the 1.5900 handle.

2. Quarterly inflation report and Carney’s speech (11:30 am GMT)

Why is it important?
In Mark Carney’s last quarterly inflation speech he revealed the BOE’s forward guidance plans. Not only did he link the central bank’s interest rates to the unemployment rate, but he also upgraded their economic forecasts and estimated that the BOE isn’t likely to raise rates until 2016.

What are analysts expecting tomorrow?
Many expect Carney to adjust the BOE’s interest rate hike calendar and growth expectations to acknowledge the faster-than-expected improvements in the employment sector. On the other hand, some believe that the BOE would adopt a cautious tone in order to prevent more interest rate hike expectations and a stronger pound.

How will the pound react?
The pound is likely to strengthen if Carney remarks on the improvements in the U.K. economy without injecting a cautious tone. But if he stresses the central bank’s willingness to keep its rates steady for the foreseeable future and warns investors that the pound’s strength has little fundamental basis, then the pound bears might get the downside technical breaks that they’re looking for.

As always, trading guides like these should be supplemented by your own research. Fakeouts, intraday reversals, profit-taking, and even report misinterpretations could always happen. Prepare for as many scenarios as you can think of and you’ll have a bigger chance at bagging pips this week.